UK economy shrinks 0.2pc: economists' reaction

The UK economy shrank by 0.2pc in the fourth quarter, revised figures from the
Office for National Statistics showed, as businesses cut back on spending.
This is how economists viewed the figures:

The UK economy shrank by 0.2pc in the fourth quarter, revised figures from the Office for National Statistics showed, as businesses cut back on spending.Photo: ALAMY

12:03PM GMT 24 Feb 2012

Howard Archer, IHS Global Insight:

The breakdown of the fourth-quarter GDP data contains a mixture of worrying and encouraging news.

There was some decent news with consumer spending growing for the first time since the third quarter of 2010 and by a decent 0.5pc quarter-on-quarter, as well as exports seeing very decent growth of 2.3pc quarter-on-quarter despite GDP contraction of 0.3pc quarter-on-quarter in the Eurozone.

It is also notable that GDP would have expanded in the fourth quarter of 2011 but for a sharp running down of stocks.

While it was confirmed that GDP contracted by 0.2pc in the fourth quarter of 2011, events since appear to have taken a welcome turn for the better with latest data and survey evidence relating to services activity, manufacturing and retail sales indicating that the economy is clearly growing early on in 2012.

We currently expect the economy to grow by around 0.4pc quarter-on-quarter in the first quarter of 2012, although this is partly due to a bounce back effect from the fourth quarter 2011 contraction and we do not expect that rate to be sustained in the second quarter, especially as the extra day's public holiday for the Queen's Diamond Jubilee is likely to hit growth.

Ross Walker, Royal Bank of Scotland:

It's a pretty poor number. The main positive is that improvements (in survey data) that look increasingly broad based have not been captured, and we will get a bounce back in Q1.

The government consumption looks very strong, household consumption is bouncing back a bit, but the weakness in business investment is a bit of a concern.

If you get what looks like a rather weak quarter in Q4, a simple level effect will tend to get you back.

I don't think it will be a spectacular Q1 but I think we will squeeze some growth out of it.

Philip Shaw, Investec:

No huge surprises here. The expenditure detail shows the substantial effect from the slower rate of stock building.

Without the swing in the stock cycle, the economy would have expanded. Indeed, we now expect a positive GDP outturn for Q1 given the upturn in many of the indicators which we've seen recently.

The uncertainties remain, and when economies recover from financial crises, they don't recover in a straight line, that's something which we've already seen over the past year, and certainly the BoE's central GDP forecast for 2013 does look punchy.

It's unlikely that the data over the next few months will completely put policymakers' minds at ease over the durability of the recovery, and it does seem likely we'll get more QE in May.